Already and this is the Daily this is the Daily OS.
Oh now it makes sense.
Good morning and welcome to the Daily Odds. It's Friday, the seventh of March. I'm Sam, I'm Billy.
Wait Sam, Before we start the podcast, yeah, I would like to acknowledge that we're in a new studio setup and we have these beautiful chairs. And if you watch us on YouTube, I'm looking at the camera now for the people following on YouTube, you'll see that we have these beautiful new chairs. I feel like I'm on the call her Daddy set. That's kind of what it looks like.
It's the small things that make a huge difference to a podcast like the Daily OS. Yeah.
I think it's really going to uplift the quality of our podcasts.
It's fantastic. And I actually just said to you before, Billy, they feel like therapy chairs. Yes, and so maybe it means that when we have you know, Prime Minister in here, the opposition leader in here, they're going to be a bit more open, a bit more comfortable, more in touch. Love it. But that is enough chair chat for your Friday. Let's get into what we're talking about today, and that
is the Australian housing market. It's been in the news again with property prices continuing to climb despite some interest rate relief from the RBA last month. So for young Australians hoping to buy their first home, the situation does seem to be getting increasingly challenging. And I think what interest rates dropping presented to us was a glimmer of hope ahead of a federal election where the cost of living and how and where young Australians are going to
get their first home. We're going to have a discussion about whether the Australian dream is in more trouble than ever before. And to do that we're going to be joined by Tim Lawless. He is the head of research at core Logic, who released some new housing data this week that shows that despite the RBA cutting interest rates last month, house prices are ticking back up.
So Sam. Housing affordability has been a topic that we have been talking about, well Australia has been talking about for dec really, but I feel like since the pandemic, the conversation about affordability of housing in Australia really ramped up. We saw a massive increase in the price of houses in Australia, not just the cost of a house but
also the price of renting in Australia. I want to start by just looking at what is the state of play, what does the market look like right now when it comes to housing in Australia.
So the base of this discussion with Tim is core logics finding that house prices went up point three percent in February, and that is after a three month period where house prices were dropping. And so you have the state of play in February being that in every capital city except Darwin and in regional Australia, it's more expensive to buy a house than it was a month ago. And that's a really interesting way into thinking about whether we're in a better spot than we were twelve months
ago to try and buy a house. You're right about the renting point. That's a really interesting discussion and Tim had some really interesting stats about how incredible the rent rises were in the pandemic and they're better now but still not great. And then I asked him about the election and as an analyst, what he sees his role to be in trying to break down the housing policy. We're going to be thrown at in the next couple of weeks.
Okay, I think that gives us some good context for your interview with Tim Lawless. In my mind, he's like a mini celebrity because I see him on every press release from Callhord Jick. So I'm excited to hear his voice and see his face put a face to the name on the press releases. So here is that chat.
Tim, Thank you so much for joining us this morning, No problem, Sam, thanks for the invitation. So housing affordability has been something that we've talked about a number of times on this podcast. We saw a rate cut from the RBA in February. Did that relieve some of the pressure on house prices in Australia?
Well, not really, because we actually saw house prices rise in February, breaking a three month downturn if you'd like to call it that. It was more of a pause in the marketplace where we saw a measure of home values nationally peaked in October and fell for three months, and then it bounds back by point three percent, virtually taking the market back to where it was at the end of last year. So yeah, I think in that sense we're still seeing affordability as a real challenge fair enough.
Serviceability might have improved a little bit with a twenty five basis point rate cut, But in the grand scheme of things, if you're on say a seven hundred and fifty thousand dollars mortgage, that twenty five basis point rate cut means about one hundred and twenty dollars a month saving, So in the grand scheme of things, it's not much, and we need to see rates coming down a lot further before you'd really describe interst rates as being stimulatory. It's still quite high.
So obviously we've got the benefit of hindsight here. But were you surprised to see those February numbers come through showing a tick back up.
I'll say no, maybe kind of actually, because normally you wouldn't see markets responding that quickly to a rate cut. But I think what we drove values a little bit higher in February was probably just the sentiment that had already been growing as we saw expectations of a rate cut were building, and everybody knew it was just a matter of time or when, rather than if, so I think that's probably the biggest thing behind why we saw this fairly broad based rise in housing values in February.
Albeit zero point three percent rise isn't that much at all in dollar terms. That means nationally we saw about a twenty four hundred dollars increase in the median value. But I think the key thing was almost everywhere saw a rise in values that there was only a couple of exceptions Darwin Regional Victoria with the two where we didn't see a rise in values. So yeah, I think it was more about sentiment than the actual rate cut itself.
So is it easier to enter the housing market as a first time owner now or say twelve months ago from your perspective.
Probably not, because over the past twelve months we've seen housing values nationally have increased by about four percent, or in dollar terms, they've gone up by nearly thirty thousand dollars. So I think for most people they wouldn't have seen a thirty thousand dollars boost to their income over the past twelve months. So yeah, even though serviceability might have improved a little bit, and that absolutely that's one of the barriers to getting into the marketplace is proving up
to the bank that you can pay them back. So interest rates coming down a little bit definitely, that's a positive, but compared to a year ago, prices are quite a bit higher, especially if you're looking to buy into markets like say Perth, both housing prices are up about fourteen percent in twelve months. Adelaide Brisbane are also well have been very strong markets. If you're looking to get into a market like Melbourne, prices are actually quite a bit
lower in Melbourne than there were twelve months ago. They're down in Melbourne by about three percent, or in dollar terms they're about twenty five thousand dollars lower than a year ago. So there are some exceptions to the rule, and I think you'll find that first home buyers do
become more active in those markets. Melbourne, Hobart, Canberra all good examples where values have come down over the past twelve months and where there's probably a good opportunity to get into the marketplace at a bit of a discount, at least relative to recognize.
How are things looking in the regions then tim especially for first time buyers, much.
More resilient actually, so we haven't really seen the regional markets behaving like the capital cities. Sure they're slow down in the rate of growth, but they've still remained positive. But again there is a lot of diversity here. Some of the markets that are really driving the stronger regional trends tend to be quite rural markets areas like Gladstone or Townsville, Rockhampton. Go to somewhere like Ballarat or Geelong in Victoria and these markets are well down over the
past twelve months, and from their peak. Areas like Newcastle or Woongong around Sydney have generally still seen growth, but much more subtle levels of growth as well. So it's quite diverse. But I think broadly regional markets are still experiencing this additional rate of population growth than what they're seeing pride of the pandemic. More people leaving the capital cities to go to regional Australia and that seems to be on a bit of a second wind at the moment.
Isn't that interesting that we're seeing kind of another wave of regional movement two years after the pandemic ended.
Yeah, and maybe that's related to still that the affordability of regional Australia relative to the capitals is still there, even though it's not as pronounced as it used to be, say prior to twenty twenty. But also I think it demonstrates some of this I guess permanency of hybrid working situations as well. A lot of people have returned to the office, but generally if you're in a professional or a white collar environment, tends to be sort of three
days a week back in the office. So those sort of regional commutable markets, they're in that sweet spot of maybe being within an hour or two of a major capital city. I think that they've probably seen a structural change in their underlying demand where they probably will be more popular going forward than what they were prior to COVID.
And just quickly talking about rental markets, a lot of our listeners would be renters. Have rental markets calmed down since the pretty wild days of the pandemic where we heard lots of stories anecdotally from our readers. I'm included in that bucket as well, the rents went up really quickly.
Yeah, Sam, I think that's a good way to describe it. They have calmed down that they certainly haven't fallen, so we're still seeing rents rising, but nowhere near as rapidly is what they were. To give you a couple of examples, go back to the middle of twenty twenty one. That was the height of the rental boom, and we're seeing markets like Sydney and Melbourne, particularly the unit sectors of Sydney and Melbourne, were seeing rents rising fifteen sixteen percent per annum. It was extremes.
That's a massive jump, but.
It's huge, absolutely a typical rental market movement oversee the past ten years. An end or growth rate, a normal one would be about two to three percent. So yeah, there's fifteen to sixteen percent rise in rental values was an absolute shock to a lot of renters. The good news is we're now seeing vents rising at a much
more mild level. Typically in Sydney and Melbourne, unit rents a rising two to three percent, house rents roughly the same, but still that comes after this period of extreme growth, and they're not going backwards in most cases, which means rental affordability is still a real challenge.
We always have this conversation with our listeners about interest rates and cost of living and trying to kind of make the point that even if things slow down, your coffee that's five dollars is very unlikely to ever go back to being four dollars. Can you apply that logic to renting? I mean, you know you've mentioned there twice. Rents haven't gone backwards. Could we realistically expect them to go backwards?
Well, we could see rents go backwards, but I think not not materially, not significantly. And I agree with you it's very rare to see the price of something actually retreat. There could be a situation where we do see rents
go backwards temporarily. And at the moment, we are definitely seeing significant reduction in overseas migration, for example, and a big part of that boom in rental conditions was simply the additional demand we're seeing as borders reopened and an influx of temporary migrants came to Australia, and that really drove rental demand significantly higher at a time when households had become smaller across the country as well through the pandemic,
which really amplified rental demand. We've now seen overseas migrations fallen by about sixty five percent from its peak back to much more normal levels, and that's helped to reduce rental demand a little bit. But we're also seeing rental households becoming larger. I think that luxury of having maybe the second or third bedroom as a home office for a lot of people is simply that a luxury, and they've had to tenant that room out to cover their mental costs.
A final question from me, Tim, We're about to enter a federal election cycle. We're expecting the election to be called any day now. I'm not going to ask you to give me kind of analysis of which platform you think is better, but more I want to ask about your role in the election. How are you going to approach as a researcher, as an expert in this space.
What signals are you going to be looking for as the parties come out with housing policy, and how are you going to try and help Australians make sense of it all.
Yeah, great question, and I think as an analyst, I'm here to provide the information and the data to make informed decisions. And I think we could see this across at least the major political parties that Australia is in the grips of a massive supply issue. Housing supply issue. We need to be building more homes. And once you start building a lot more homes, then that starts to resolve some of the affordability challenges because it helps to
keep a lid on price growth in housing prices. So I think that's probably the key to this election is those political parties that have a real supply side focus in their policies, trying to enable building more homes and a whole range of homes, not just apartments. We need to see more medium density and low density homes as well, and we need to see a lot more transport that's connecting these homes to make them desirable and efficient to
commute from. So I think that's where we're probably see the most influential policies being announced that are going to be determining housing outcomes.
A very interesting election period coming up. It's fascinating to kind of have this one rate drop before the election really goes into full swing, house prices being a bit stubborn and staying where they are, if not ticking upwards. And then yeah, the discussion, I agree with you, will
focus more on supply. And I'm really relieved that you actually mentioned that point about transport because I find that that's often missed in these conversations about housing, and it's not just transport right, it's about schooling, and it's about employment opportunities in the regions where there's meant to be more houses being built. So I appreciate that a lot, and I'm really excited to see the dynamics of this housing conversation in this upcoming election.
Well said Sam, and yeah, I think we could talk for days about the need for amenity and infrastructure linking up areas where new housing is going in. But fully agree with that.
Thank you so much for joining us, Tim, appreciate it.
Such a great conversation, and I think that gives us a lot of context going into this election campaign that we are very much about to enter.
We know it's going to be a huge issue that you know, all major parties and minor parties are going to be talking about a lot. So whatever we can do to try and make sense of it is a good conversation.
You have no doubt there will be a lot of policies being announced in the next couple of weeks about housing. Sam, thank you for the interview, Thanks Billy, and thank you so much for listening to this episode of The Daily OS. If you're feeling very generous on your Friday morning or afternoon, or whenever you're listening to us, if you could hit follow on Spotify or Apple, it really helps us climb up for those charts.
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